AE4-13 Contribution Margin [LO 3] Rhetorix, Inc. produces stereo speakers. The s

Question

AE4-13

Contribution Margin [LO 3]

Rhetorix, Inc. produces stereo speakers. The selling price per pair of speakers is $900. The variable cost of production is $288 and the fixed cost per month is $61,100.

Calculate the contribution margin associated with a pair of speakers.

$ __________________


In August, the company sold 11 more pairs of speakers than planned. What is the expected effect on profit of selling the additional speakers?

$ ________________


Calculate the contribution margin ratio for Rhetorix associated with a pair of speakers. (Enter answer to 2 decimal places, e.g. 0.25.)


In October, the company had sales that were $9,700 higher than planned. What is the expected effect on profit related to the additional sales?

$ _____________________






AE4-18

Constraints [LO 6]

Dvorak Music produces two durable music stands:

Stand A
Stand B

Selling Price $126 $85
Less variable costs 42
37

Contribution margin $84
$48


Stand A requires 7 labor hours and stand B requires 3 labor hours. The company has only 358 available labor hours per week. Further, the company can sell all it can produce of either product.


Which stand(s) should the company produce?

Stand B or Stand A


What would be the incremental benefit of obtaining 16 additional labor hours?

$ _______________

Explanation / Answer

Contribution margin = selling price - variable costs contribution margin = 900 - 288 = 612 11 x contribution margin = 11 * 612 = 6732 additional profit contribution margin ratio = contribution maring/selling price = 612/900 = 0.68 or 68% 9700 x contribution margin ratio = 9700*0.68 = 6596 increaes in profit Produce stand B. (Divide contribution margin by number of hours required per unit. For A, it is 84/7 or 12, for B it is 48/3 or 16. So if you produce B, you get more profit per labor hour. Obtaining 16 additional labor hours, you could produce 5 1/3 more units of B. Multiply by the contribution margin for B and get 256 increase in profit.

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